01 Jul Is a Private Student Loan Right for You?
There is no getting around the fact that college is expensive. You could still have expenses to cover once you have received the maximum scholarship, grant, and federal loan money you are eligible to receive.
Should you apply for a private student loan? This is the most common route college students go once they have exhausted all other options. It would help if you understood that private student loans operate much differently than federal student loans. We outline what to expect in this blog.
Private Loans Require a Strong Credit History
One problem students run into when applying for a private loan is that the lender has stricter criteria than they are accustomed to with federal student loans. You may not qualify for a private loan on your own if you have not built much of a credit history yet, or you have had credit problems in the past. However, you can consider asking a parent to co-sign the loan for you. The lender would then consider your parent’s credit history along with your own when processing the application.
Another difference with private student loans is that the interest rate is typically higher. If you decide to apply for a private loan, be sure to shop around and compare lenders, interest rates, and repayment terms.
Federal and private student loans also have several similarities. You can borrow funds to pay for any education expense, including tuition, room and board, and miscellaneous fees. After receiving approval for a private student loan, the lender sends the funds to your school just as the federal government does. Depending on the lender, you may also defer payments on the loan until after you graduate.
You probably do not have much of a credit history yet if you just graduated from high school. Applying for a private student loan with a strong co-signer, such as a parent with a high credit score, is a great way to build your own credit. Even so, you should consider a private student loan a last resort after applying for as much gift aid and federal student loan funds as possible.
How to Pay Private Student Loan Debt as Quickly as Possible
Since private student loans will likely have a higher interest rate and require quicker repayment, consider paying them off first before government loans. If you work while attending school, put any extra money you have towards paying off your private loans, even if the lender defers payment until after graduation. You will be that much more ahead of your debt once you are out of school. Another way to pay off private student loan debt faster is to make more than the minimum payment due each month.
Contact Us to Discuss College Financial Planning in More Detail
We recommend starting with the bank where you or your parents already have accounts if you decide to apply for a private loan. Please feel free to schedule a consultation with Accolade Financial if you would like additional input on finding ways to pay for college.